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what would you do?

If you were working in a school long term and they offered you a permanent position and they did not want to pay the agency, what would you do? And if you had been the second best in an interview previously applying through the LEA, the school wanted to take you on using that interview as their chosen teacher had left, and you were supplying in that school through the agency, what should you do? Very confused.

Blimey. Well, first of all I'd take the job as jobs are few and far between. As regards a 'finders fee' if you have been previously interviewed I think (but don't know) you could get away with it.
Other than that some agencies will take the first term on supply in lieu of a finders fee (if that makes sense?). In other words, you do Sep term on supply then start permanent in Jan.
Good luck.

Grey area this. I have been supplying for many years and when I go to an agency I let them know that I have worked in certain schools and should I be re employed by them for supply or other they cannot claim what I term as a' first introduction to the school'.

If you have to go through an interview and compete with others for the position then I would suggest that the Agency cannot claim anything. If you applied for the post through the Agency after they told you a position was going and to apply for it then thats very different.

The option of a term of supply seems a good way of getting around the introduction fee.

I had this with my last post. I was actually on interview at the school, awaiting feedback when the agency rang me offering a long-term contract in the school. I casually mentioned this conversation to the Head during feedback, he went off and came back to offer me the long-term post in person. Technically my first contact with the school had come through me, so they didn't have to pay the finder's fee, much to the agency's chagrin.